Why Chevron Will Settle In Ecuador

This week in the magazine, I tell the story of an eighteen-year legal battle between a New York lawyer, Steven Donziger, and Chevron, over alleged environmental contamination in the Amazon. Late yesterday, this ongoing saga took a dramatic and possibly decisive turn, when an appeals court in Lago Agrio, Ecuador, upheld an $18 billion fine against Chevron—the largest judgment ever awarded in an environmental lawsuit. Chevron condemned the ruling last night, calling it “another glaring example of the politicization and corruption of Ecuador’s judiciary.”

The company’s objections notwithstanding, this decision may initiate an endgame in the case. The most likely outcome is a settlement. In fact, according to a source close to the case, this fall Chevron’s general counsel, R. Hewitt Pate, initiated a secret meeting in San Francisco with John Keker, an attorney who represents Donziger, to explore the possibility of settling.

In theory, Chevron has one final appeal in Ecuador, to the country’s Supreme Court. But to proceed with that appeal and stop the plaintiffs from trying to collect on the judgment in the meantime, Chevron would have to post a multi-billion dollar bond, which, given its jaundiced view of the rule of law in Ecuador, it seems unlikely to do. So for all intents and purposes, yesterday’s decision amounts to a green light for the plaintiffs to start collecting.

There’s a wrinkle, however: Chevron has no assets in Ecuador—so even with an $18 billion judgment in their favor, Donziger and his Ecuadoran clients will have to look outside the country to collect. Chevron is one of the largest corporations in the world, but its size and resources, which have mostly been an advantage in this asymmetric legal struggle, may now become a liability. The company has operations in scores of countries, from Angola to Singapore to Venezuela, so the plaintiffs’ strategy is simple: if they can’t enforce their judgment in Ecuador, they’ll seek to repossess Chevron assets elsewhere.

How do we know this is their strategy? Because as part of the legal discovery in the case, Chevron obtained a confidential document prepared by lawyers for the plaintiffs and known as “the Invictus memo.” The document (which you can read here) outlines the plan to “identify…Chevron assets worldwide” and select “jurisdictions that offer the path of least resistance to enforcement.”

Should it come to that, Chevron lawyers will follow the plaintiffs’ lawyers to each of these countries and argue that Ecuador is corrupt and that the judgment is fraudulent, and should not be enforced. But the company is desperate to avoid that scenario. Earlier this year, Chevron lawyer Randy Mastro persuaded a federal judge in New York to issue an extraordinary and unprecedented global injunction, barring the Ecuadorans from trying to collect on the judgment anywhere in the world. But the injunction was overturned on appeal.

Chevron has sought to invalidate the judgment through an arbitration proceeding against Ecuador in the Hague. According to a recent Huffington Post article by Mitch Anderson, an activist associated with the plaintiffs, the company has also tried to quash the judgment by proposing a $500 million donation to the Ecuadoran government for the Yasuni environmental initiative in the Amazon.

The truth is, neither side wants to engage in a global game of whack-a-mole, re-litigating the contested integrity of the Ecuadoran judgment in courtrooms around the planet. While the Invictus memo outlines an aggressive strategy for international enforcement, it also acknowledges that, “The goal is to create an optimal environment for settlement.”

As I reveal in the piece, the case could have been settled in 2001 for $140 million. Since then, each settlement conversation has entertained higher numbers than the last. Chevron once promised the plaintiffs “a lifetime of litigation,” and the sheer acrimony that has marked the case might yet goad both sides to continue the fight. But at some point, they will be forced to bargain, and yesterday’s decision in Ecuador could help bring that about.

Photograph by Remi Benali.

Patrick Radden Keefe has been contributing to The New Yorker since 2006 and joined the magazine as a staff writer in 2012.